The Case Against Biofuels: Probing Ethanol’s Hidden Costs

Despite strong evidence that growing food crops to produce ethanol is harmful to the environment and the world’s poor, the Obama administration is backing subsidies and programs that will ensure that half of the U.S.’s corn crop will soon go to biofuel production. It’s time to recognize that biofuels are anything but green.

In light of the strong evidence that growing corn, soybeans, and other food crops to produce ethanol takes a heavy toll on the environment and is hurting the world’s poor through higher food prices, consider this astonishing fact: This year, more than a third of the U.S.’s record corn harvest of 335 million metric tons will be used to produce corn ethanol. What’s more, within five years fully 50 percent of the U.S. corn crop is expected to wind up as biofuels.

Here’s another sobering fact. Despite the record deficits facing the U.S., and notwithstanding President Obama’s embrace of some truly sustainable renewable energy policies, the president and his administration have wholeheartedly embraced corn ethanol and the tangle of government subsidies, price supports, and tariffs that underpin the entire dubious enterprise of using corn to power our cars. In early February, the president threw his weight behind new and existing initiatives to boost ethanol production from both food and nonfood sources, including supporting Congressional mandates that would triple biofuel production to 36 billion gallons by 2022.

Congress and the Obama administration are paying billions of dollars to producers of biofuels, with expenditures scheduled to increase steadily through 2022 and possibly 2030. The fuels are touted by these producers as a “green” solution to reliance on imported petroleum, and a boost for farmers seeking higher prices.

Subsidy supports are a testament to the power of the farm lobby and its sway over Congress.

Yet a close look at their impact on food security and the environment — with profound effects on water, the eutrophication of our coastal zones from fertilizers, land use, and greenhouse gas emissions — suggests that the biofuel bandwagon is anything but green. Congress and the administration need to reconsider whether they are throwing good money after bad. If the biofuel saga illustrates anything, it is that thinking ecologically will require thinking more logically, as well.

Investments in biofuels have grown rapidly in the last decade, accelerating especially in developed countries and Brazil after 2003, when oil prices began to climb above $25 per barrel, reaching a peak of $120 per barrel in 2008. Between 2001 and 2008, world production of ethanol tripled from 4.9 billion gallons to 17 billion gallons, while biodiesel output rose from 264 million gallons to 2.9 billion gallons. Together, the U.S. and Brazil account for most of the world’s ethanol production. Biodiesel, the other major biofuel, is produced mainly in the European Union, which makes roughly five times more than the U.S. In the EU, ethanol and biodiesel are projected to increase oilseed, wheat, and corn usage from negligible levels in 2004 to roughly 21, 17, and 5 million tons, respectively, in 2016, according to the Organization for Economic Cooperation and Development.

In the U.S., once a reliable supplier of exported grain and oilseeds for food, biofuel production is soaring even as food crop export demand remains strong, driving prices further upward. Government support undergirding the biofuels industry has also grown rapidly and now forms a massive federal program that may be good for farm states, but is very bad for U.S. taxpayers.

The rapid increase in grain and oilseed prices has been a shock to consumers worldwide.

These subsidy supports are a testament to the power of the farm lobby and its sway over the U.S. Congress. In addition to longstanding crop price supports that encourage production of corn and soybeans as feedstocks, biofuels are propped up by several other forms of government largesse. The first of these are mandates, known as “renewable fuels standards”: In the U.S. in 2007, energy legislation raised mandated production of biofuels to 36 billion gallons by 2022. These mandates shelter biofuels investments by guaranteeing that the demand will be there, thus encouraging oversupply.

Then there are direct biofuel production subsidies, which raise feedstock prices for farmers by increasing the price of corn. In the U.S., blenders are paid a 45 cent-per-gallon “blender’s tax credit” for ethanol — the equivalent of more than $200 per acre to divert scarce corn from the food supply into fuel tanks. The federal government also pays a $1 credit for plant-based biodiesel and “cellulosic” ethanol.

Finally, there is a 54 cent-per-gallon tariff on imported biofuel to protect domestic production from competition, especially to prevent Brazilian sugarcane-based ethanol (which can be produced at less than half the cost of U.S. ethanol from corn) from entering U.S. markets. These subsidies allow ethanol producers to pay higher and higher prices for feedstocks, illustrated by the record 2008 levels of corn, soybean, and wheat prices. Projections suggest they will remain higher, assuming normal weather and yields.

The rapid increase in grain and oilseed prices due to biofuels expansion has been a shock to consumers worldwide, especially during 2008 and early 2009. From 2005 to January 2008, the global price of wheat increased 143 percent, corn by 105 percent, rice by 154 percent, sugar by 118 percent, and oilseeds by 197 percent. In 2006-2007, this rate of increase accelerated, according to the U.S. Department of Agriculture, “due to continued demand for biofuels and drought in major producing countries.” The price increases have since moderated, but many believe only temporarily, given tight stocks-to-use ratios.

It is in poor countries that these price increases pose direct threats to disposable income and food security. There, the run-up in food prices has been ominous for the more than one billion of the world’s poor who are chronically food-insecure. Poor farmers in countries such as Bangladesh can barely support a household on a subsistence basis, and have little if any surplus production to sell, which means they do not benefit from higher prices for corn or wheat. And poor slum-dwellers in Lagos, Calcutta, Manila, or Mexico City produce no food at all, and spend as much as 90 percent of their meager household incomes just to eat.

But the most worrisome of recent criticisms of biofuels relate to their impacts on the natural environment. In the U.S., water shortages due to the huge volumes necessary to process grains or sugar into ethanol are not uncommon, and are amplified if these crops are irrigated. Growing corn to produce ethanol, according to a 2007 study by the U.S. National Academy of Sciences, consumes 200 times more water than the water used to process corn into ethanol.

Biofuels have made the slow fade from green to brown.

In the cornbelt of the Upper Midwest, even more serious problem arise. Corn acreage, which expanded by over 15 percent in 2007 in response to ethanol demands, requires extensive fertilization, adding to nitrogen and phosphorus that run off into lakes and streams and eventually enter the Mississippi River watershed. This is aggravated by systems of subterranean tiles and drains — 98 percent of Iowa’s arable fields are tiled — that accelerate field drainage into ditches and local watersheds. As a result, loadings of nitrogen and phosphorus into the Mississippi and the Gulf of Mexico encourage algae growth, starving water bodies of oxygen needed by aquatic life and enlarging the hypoxic “dead zone” in the gulf.

Next is simply the crop acreage needed to feed the biofuels beast. A 2007 study in Science noted that to replace just 10 percent of the gasoline in the U.S. with ethanol and biodiesel would require 43 percent of current U.S. cropland for biofuel feedstocks. The EU would need to commit 38 percent of its cropland base. Otherwise, new lands will need to be brought into cultivation, drawn disproportionately from those more vulnerable to environmental damage, such as forests.

A pair of 2008 studies, again in Science, focused on the question of greenhouse gas emissions due to land-use shifts resulting from biofuels. One study said that if land is converted from rainforests, peatlands, savannas, or grasslands to produce biofuels, it causes a large net increase in greenhouse gas emissions for decades. A second study said that growing corn for ethanol in the U.S., for example, can lead to the clearing of forests and other wild lands in the developing world for food corn, which also causes a surge in greenhouse gas emissions.

A third study, by Nobel-Prize winning chemist Paul Crutzen in 2007, emphasized the impact from the heavy applications of nitrogen needed to grow expanded feedstocks of corn and rapeseed. The nitrogen necessary to grow these crops releases nitrous oxide into the atmosphere — a greenhouse gas 296 times more damaging than CO2 — and contributes more to global warming than biofuels save through fossil fuel reductions.

Thus have biofuels made the slow fade from green to brown. It is a sad irony of the biofuels experience that resource alternatives that seemed farmer-friendly and green have turned out so badly.

What’s needed are a freeze on further mandates to slow overinvestment, reductions in the blenders’ tax credit — especially when corn prices are high — and cuts in tariff protection to encourage cost-reduction strategies by U.S. producers. And the high environmental and human costs of using corn, soybeans, and other food crops to produce biofuels should spur government initiatives to develop more sustainable forms of renewable energy, such as wind power, solar power, and — one day, perhaps — algal biofuels grown at waste treatment plants.

Yet sadly, as in so many areas of policy, Congress and the administration prefer to reward inefficiency and political influence more than pursuing cost-effective — and sustainable — energy strategies.

C. Ford Runge is the McKnight University Professor of Applied Economics and Law at the University of Minnesota, where he also holds appointments in the Hubert H. Humphrey Institute of Public Affairs and the Department of Forest Resources. He is former director of the university's Center for International Food and Agricultural Policy and has written for Foreign Affairs. More about C. Ford Runge →